Australia’s housing market is experiencing a retreat after years of rapid growth, with property prices easing and auction clearance rates softening across the country. According to analysis by AMP chief economist Theguardian, the property market has seen seven downturns over the past four decades, frequently triggered by interest rate hikes that make home loans more expensive.
Australia Property Market Cools as Interest Rates and Policy Shifts Weigh on Prices
Oliver forecasts that average capital city prices will continue falling until around April, capping a 7.8% drop from peak to trough. This comes after the Reserve Bank of Australia hiked interest rates, while federal budget tax changes and government property investor tax shifts have also altered market sentiment. UBS notes that property price declines since the early 1990s have averaged a 5% decline over 13 months.
Despite the broader national cool-down, Australia is experiencing a fragmented market rather than a uniform crash. While cities like Melbourne face weaker conditions—with Melbourne recording one of the highest shares of loss-making house resales alongside Canberra—smaller capitals continue to perform strongly. Perth recorded the greatest proportion of profitable house resales at 99.6%, while Brisbane led the unit market with 99.5% of resales generating a positive return, driven by tight housing supply, strong population growth, and robust labor markets.
Resale Profits Remain High Despite Early Cracks in Profitability
New data released by Domain indicates that cracks in market profitability have begun to appear according to SBS News, with 97.4% of house resales resulting in a profit in the first half of the year, marking a slight decline from 97.5% 12 months prior. Successful sellers continue to enjoy record returns, with national median resale profits climbing to $458,000 for houses and $237,000 for units. Capital city median house profits reached even higher at $552,000, with Sydney posting the country’s largest resale returns at a median house profit of $739,500.
At the same time, properties experiencing losses are seeing larger average deficits. Analysts point out that these higher losses stem from a small pool of sellers who may be in financial distress or have over-leveraged themselves to keep up with prior price gains. Capital city auction clearance rates have remained below 50% since late May, though they have moved up from the low 40s range seen in mid-to-late June.
Economic Impacts and the Outlook for Housing Affordability
Housing touches nearly every sector of Australia’s economy, supporting construction, manufacturing, and professional services while generating consumer spending on furniture, appliances, and renovations. However, Reserve Bank loan-level data shows that mortgage arrears remain low, with fewer than 1% of housing loans more than 90 days behind in repayments.
Research suggests that a softer housing market is likely to weigh modestly on economic activity through reduced discretionary spending, though a modest correction after years of exceptional growth is not expected by itself to trigger a broader economic slowdown. NAB forecasts relatively stagnant property price growth next year, which may help address long-term affordability issues where prices have historically outpaced wage growth.